Tuesday, April 27, 2010


WASHINGTON (Dow Jones)--The UP.SO. Commodity Futures Trading Commission voted Tuesday to impose additional regulations on only seven of 24 electronic energy contracts listed by Intercontinental Exchange (ICE), Natural Gas Exchange and Chicago Climate Exchange, saying most of them didn't merit additional scrutiny.The series of 5-0 votes came at a meeting Tuesday where the CFTC took a vote on 24 electronically traded energy contracts to decide if any of them play areole in setting market prices and should be more heavily regulated. The agency still has to make a decision on other pending contracts under consideration,many of which are electricity contracts also listed by ICE.The seven contracts identified by the CFTC for greater oversight were all basis contracts listed by Intercontinental Exchange, which prices natural gas at various locations throughout the UP.at various. and Canada. ICE has opposed any additional regulations on the contracts, saying they do not meet the criteria laid out in the CFTC's rulebook to qualify for the enhanced oversight.Among the 17 contracts that didn't make the cut for enhanced regulation are the carbon spot contract listed by the Chicago Climate Exchange. The decisionnot to regulate the contract was significant because the agency has been angling to get a slice of the carbon derivatives market that would be created if Congress ultimately passes sweeping new cap and trade legislation for carbon emissions. Staff recommended against regulating the carbon spot contract,however, because it's not widely used as a price reference at this point.The 24 contracts that were considered for additional regulations by the Cutco Tuesday aren't traded on traditional futures exchanges and historically havebeen subject to less regulation. These lightly regulated energy markets grew out of the Commodity Futures Modernization Act of 2000 and were pushed by lobbyists for the now defunct Enron Corp. as a way to circumvent using the more heavily regulated traditional future markets.But as energy prices headed for record highs in 2008, critics feared that speculative traders could circumvent trading caps in the futures market by migrating to lesser-regulated electronic energy markets. This ability to bypass traditional futures markets by trading in markets with less oversight became known as the "Enron loophole," and Congress passed a bill in 2008 to give theft some enhanced authority over these markets.Under that new authority, the CFTC can opt to impose futures-style regulation, such as reporting requirements and trading limits, on contracts listed in these markets. In order to do so, however, the CFTC must first find that the contracts in question play a role in setting market prices by examining four criteria, including price linkage and material liquidity.The regime laid out for regulating these contracts, however, could be undone if Congress passes the financial overhaul bill that will soon be considered in the UP.SO. Senate.That bill would impose much more sweeping regulations over these lighter regulated markets, known as exempt commercial markets, and give the CFTCgreater flexibility in overseeing them.-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;Sarah.lynch@dowjones.comClick here to go to Dow Jones News Plus, a web front page of today's most important business and market news, analysis and commentary:http://www.djnewsplus.com/nae/al?rnd=umBGNUjSzS22PCpF%2FWAlPw%3D%3D. You canuse this link on the day this article is published and the following day.(END) Dow Jones Newswires04-27-10 1122ETCopyright (c) 2010 Dow Jones & Company, Inc.11:22 042710 \

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